STX Heavy calls off W450b Iraq project

STX Heavy Industries has called off a 450.8 billion won ($406.8 million) contract to build a gas pipeline in Iraq, fueling concerns about the company’s ongoing restructuring efforts.

The company said Friday the decision was made due to the prolonged conflict in Anbar, Iraq, where Islamic State extremists have been mounting a wave of attacks targeting the Iraqi army.

“The worsening situation in the region has reached the level where we cannot proceed with construction,” a company official told the local media. “Terminating the contract was at the request of the buyer, and all transactions carried out before the cancellation have been settled.”

STX and KOGAS AKKAS B.V., a subsidiary of state-run Korea Gas Corp., signed the deal in January 2014 to connect a new 550-kilometer pipeline to the Akkas gas field in the Iraqi province.

STX was set to carry out the whole process on a lump sum basis from engineering to purchasing equipment and materials, which was due for completion by June 2017.

According to the firm’s earnings report, the cancelled project made up about 44.5 percent of its last year’s sales of 1.12 trillion won.

Creditors of STX are now concerned that the latest development could further delay the company’s restructuring plan.

They were considering separating the plant business from the company to reduce the risk of its proposed merger with STX Engine, STX’s engine and turbine manufacturing unit.

But the plant business division has been struggling to find a buyer due to its poor sluggish overseas performance.

STX Heavy is taking part in a number of projects in Iraq, including a gas treatment facilities in Garraf oil field, a power plant in Amara and an oilfield redevelopment in Zubair, according to the International Contractors Association of Korea.

By Suk Gee-hyun (monicasuk@heraldcorp.com)